When a bad credit rating only gets worse

Imagine applying for a credit card, looking at buying a car or even putting in an application for a home loan and being told that you couldn't because you had a negative credit rating.

What would you do? If you’re like James Sheridan who is an carpenter from Newcastle, you might freak out and Google what a “bad credit rating” is.

“When I went to apply for credit they said you’ve got a default on and that’s something that I really didn't know much about,” he says.

“I guess I panicked and went onto Google and said, is it possible to get your credit removed and fast, because I was on a limited time frame. I found this company that said it would get rid of it quickly and it sounded really promising,” he told Hack.

James Sheridan who is asking Clean Credit Australia for a refund

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Do you know more? Email whyte.sarah@abc.net.au

James’ search brought up ads for “Clean Credit Australia”, a company promising to remove his bad credit from a rental company he had used in less than 10 working days.

“I spoke to this girl and she sounded really excited and said I’ve spoken to my boss and it looks like we can get it lifted for you, but the only thing is you have to pay us... by the end of the day.”

James paid the company $1095 immediately and that’s where his nightmare began.

What are credit repair companies?

This is where credit repair companies come into the picture. It’s a highly competitive industry that works as a third party, saying it will remove or repair your bad credit history - but only once you hand over a fee of around $1000.

The company that James Sheridan called, Clean Credit Australia, is one of five companies owned by Malouf Group Enterprises also includes “Credit Fix Australia”, “Clean your Credit”, “Credit Wash” and “Credit your Credit”.

On their websites the companies claim they are specialists in bad credit repair. But James says as soon as he had paid the money to Clean Credit Australia, he started to regret it.

“Immediately I started to have second thoughts because [it’s] a thousand dollars for a service I have not been given yet… and I’ve read their website but I’m still handing over a thousand dollars,” he says.

“She kept convincing me it’s going to be fine and that I had to pay the money that day or it was going to be void. She actually made me stay on the line, and I folded and then I went to my bank account to pay the money.”

What is a bad credit rating?

A credit rating is a score that is assigned to you based on how well you pay back your debts - whether it’s your phone bill, energy bill or credit card bill.

The score is from 0 - 1200 and the higher the better

Credit lenders are able to refuse you a loan if you have a bad credit rating

Clean Credit Australia then put in a claim with Equifax. It came back saying they could not remove the bad credit rating based on what Clean Credit Australia had submitted. James then discovered it it was a free online service that checks what your credit rating is, so he could have done it himself. It was only when his partner Riarna went to the rental company that had given James a bad rating that they agreed to remove it within two days.

"I just said I’ve just paid for something that I don't really know what I paid for.”

When he complained about the service to Clean Credit Australia, he was offered a $400 refund, that was then increased to $600 when he said that was not enough money and refused to take it. He is still waiting for a full refund of the $1095.

“It was hard losing $1000, It was my savings, you know,” he says.

Court case

James Sheridan’s experience with companies like Clean Credit Australia is not unusual. The Australian Securities Investment Commission has just launched a court case against the five companies owned by Jordan Malouf for misleading and “unconscionable” behaviour.

According to the ASIC court documents, more than 10,000 customers paid the company $1095 to remove their bad credit ratings.

Many of them did not actually have any bad credit ratings, or if they did, there was nothing the credit repair company could have done to help them, the documents said. ASIC estimates the company pocketed about $11.5 million between January 2014 and December 2015.

In it’s advertising, the companies also used up to 68 ad-words to promote itself at the top of all Google searches.

'Debt Vultures'

Anna Dooland is a financial counsellor with Financial Counselling Australia and says credit repair companies one of the biggest issues her clients have to face with, when they’re already panicking about being in debt.

“When people come to me after having giving away thousands of dollars they feel like they have been deceived and they blame themselves and they honestly think it’s their fault,” she said.

Cat Newton, who is a policy officer from the Consumer Action Law Centre says these companies deliberately prey on vulnerable people who are already experiencing high levels of financial distress.

“So-called ‘debt management’ firms use highly targeted and emotional marketing to promise a life free from debt or a “clean” credit report,” she said.

“But the reality is that they can charge exorbitant fees, can’t always deliver on their promises and leave many people with even less money for the essentials like putting food on the table,” she said.

The Consumer Action Law Centre is launching a petition against these companies ahead of a meeting with every state and territory consumer affairs minister at the end of the month.

She is also calling for these companies to be regulated by a peak body that can monitor complaints and the companies’ behaviour.

“The current laws don’t prevent the harm. Financial counsellors and community legal centres have been cleaning up the mess left by credit repair companies and other debt vultures for years.”

Hack contacted Credit Clean Australia for a response.

How you can find what your credit rating is

According to financial analyst Steve Mickenbecker from Canstar, you can find out your own credit rating for free at three separate websites. They include:

According to Canstar, you will have to provide identification information to find out your credit score, but you can do this very quickly and easily and you should be able to get an immediate indication of your credit score.

All of these credit reporting agencies also allow you to check your full credit history by ordering a free copy of your credit report once a year.